JETRO Invest Japan Report 2025
Chapter2. Trends in Inward FDI to Japan Section1. Trends in Inward FDI to Japan

1. Trends in Net Flows

Although equity capital has declined by more than 50% for two consecutive years, a net inflow has been maintained

According to the Ministry of Finance (MOF) and the Bank of Japan (BOJ)'s Balance of Payments Statistics (the asset/liability principle), inward FDI to Japan (net flows) in 2024 amounted to 2.5 trillion yen, down 13.6% year-on-year (Chart 2-1). By capital type, equity capital decreased 51.8% year-on-year to 0.6 trillion yen, reinvested earnings fell 4.9% to 1.8 trillion yen, and debt instruments shifted from minus 0.1 trillion yen to plus 0.2 trillion yen. Equity capital has declined by more than 50% for the second consecutive year; factors such as heightened global geopolitical risks, monetary tightening, and inflation concerns have likely caused more cautious capital movements. On the other hand, reinvested earnings have remained robust; internally retained capital provides stable support for the overall level of FDI in Japan.

A wide stacked bar chart showing the transition of the amounts of equity capital, reinvestment of earnings, and debt capital from 1996 to 2024. The vertical axis represents the amount (in 100 millions of yen), with a scale from −20,000 to 80,000, and the horizontal axis represents each year. The bar chart consists of three elements: dark blue indicates [Equity Capital,] blue with diagonal lines indicates [Reinvestment of Earnings,] and bars with a light border indicate [Debt Capital.] In the early part of the graph (1996–2003), fluctuations are relatively small, centered around equity capital and reinvestment of earnings, with minor increases and decreases around several hundred billion to 1 trillion yen. A large positive value of 14,666 (in 100 millions of yen) was recorded in 2002, but it decreased slightly to 10,296 in 2003. Significant increases followed again in 2006 with 25,947 and in 2007 with 25,303, before decreasing to 11,478 in 2008 and 6,636 in 2009. In 2010 and 2012, negative values of −2,486 and −693 were recorded, respectively, indicating a contraction in financial elements. From 2014 onwards, the upward trend strengthened, jumping significantly to 20,745 in 2015, 6,272 in 2016, and 44,915 in 2017. Particularly high values continued consecutively from 2018 to 2021: 21,144 in 2018, 27,949 in 2019, 43,659 in 2020, and reaching a peak of 67,015 in 2021. High levels continued in 2022 with 63,043, and while it decreased to 28,861 in 2023 and 24,930 in 2024, it maintained a positive range. Overall, it visually demonstrates that the growth of reinvestment of earnings and debt capital has been significant in recent years, with the stacked portions expanding substantially, especially during the peak period from 2017 to 2022. — Chart 2-1: Trends in Inward FDI to Japan (Net Flows)

Note:

This chart is based on the Balance of Payments Manual (BPM) standards. Since 2014, the statistical standards have shifted from BPM5 (the directional principle) to BPM6 (the asset/liability principle), adopting a method in which intercompany capital flows are recorded separately for lending and borrowing sides. This change has made capital movements more transparent. On the other hand, some sources may present figures on a net basis by offsetting flows, so caution is required when interpreting the data.
Source:

Based on "Balance of Payments" by MOF and BOJ

2. Trends in Stock

While maintaining an upward trend, the growth rate has slowed

At the end of 2024, FDI stock in Japan (the asset/liability principle) stood at 53.3 trillion yen, up 4.5% from the previous year, representing 8.7% of GDP (Chart 2-2). By capital type, equity capital increased 2.7% year-on-year to 25.0 trillion yen, reinvested earnings rose 8.2% to 9.5 trillion yen, and debt instruments increased 5.1% to 18.8 trillion yen. Comparing the composition ratios of each stock for 2014, when the breakdown was first published, and 2024, equity capital decreased from 64.8% to 47.0%, a drop of 17.8 percentage points, and reinvested earnings fell from 21.8% to 17.7%, down 4.1 points. In contrast, debt instruments surged from 13.4% to 35.3%, an increase of 21.9 points.

A composite chart of a bar graph and a line graph showing the transition of the inward foreign direct investment (FDI) balance in Japan and its ratio to GDP from 1996 to 2024. The left vertical axis represents the amount (in trillions of yen) with a scale from 0 to 60 trillion yen, and the right vertical axis represents the ratio to GDP (%) with a scale from 0 to 10%. The horizontal axis represents each year. The bar graph (investment balance) shows an overall upward trend. From 1996 to 2013, it showed a gradual increase, moving from approximately 3 trillion yen to just under 20 trillion yen. From 2014 onwards, the breakdown is shown (from the bottom: dark blue for [Equity Capital,] diagonal lines for [Reinvestment of Earnings,] and stippled for [Debt Capital]). The balance in 2014 was approximately 25 trillion yen (of which equity capital was 15.4 trillion yen), and it continued to increase thereafter, reaching a record high of 53.3 trillion yen in 2024. The breakdown for 2024 is 25.0 trillion yen in equity capital, 18.8 trillion yen in reinvestment of earnings, and 9.5 trillion yen in debt capital. The line graph (ratio to GDP) traces a similar trajectory to the bar graph, rising continuously from less than 1% in 1996 to a record high of 8.7% in 2024. Overall, it indicates that the ratio of the investment balance to the economic scale is expanding year by year. — Chart 2-2: Trends in Inward FDI in Japan (Stock)

Note:

Since 2014, Japan has shifted its Balance of Payments Manual (BPM) standards from the fifth edition (the directional principle) to the sixth edition (the asset/liability principle with gross recording). As a result, loan and borrowing positions are now recorded separately as assets and liabilities. In particular, liability-type capital such as borrowings newly appears as distinct outstanding amounts. Therefore, caution is required when comparing time-series data across the break in 2014, as continuity and consistency may not be maintained.
Source:

Based on "International Investment Position of Japan" by MOF and BOJ and "National Accounts of Japan" by the Cabinet Office

Go to next page in chapter 2